Little change in overall finances of district farmers and ranchers

Second Quarter (May 2001) agricultural credit conditions survey

"In this area the weather has caused planting problems. The
prices for crops are not at a profitable level and future prices
do not look like things will improve. Rents are stable with land
values increasing ... the equity level of farmers continues to fall,"
said a Minnesota agricultural lender responding to the Minneapolis
Fed's second quarter (May 2001) agricultural credit conditions survey.
This comment reflects the view of many farm lenders, as survey results
indicate a pessimistic outlook for farmers' financial statements.

The outlook may be grim, but it is not dissimilar to the financial
performance reported in the first quarter 2001 and second quarter
2000 surveys. Overall farm income and household and capital spending
are little changed from last quarter and a year ago. Agricultural
producers are repaying loans and extending loans at about the same
pace as in second quarter 2000. However, the proportion of farm
customers at their debt limit increased slightly in the second quarter,
up from both the first quarter 2001 survey and last year's second
quarter survey. Meanwhile, interest rates are down from a year ago,
while land prices continue to increase.

Farm income and spending

Overall farm income is mixed. "Severe
winter drastically reduced feed supplies and cost of hay skyrocketed,"
said a South Dakota agricultural lender. Farm income in South Dakota
decreased as 40 percent of lenders noted below-average farm income
in second quarter 2001, compared with 23 percent during the same
period last year. About 67 percent of Minnesota lenders indicated
below-average farm income in the current period, more than the 53
percent in second quarter
last year. In Montana, a third of lenders reported below-average
farm income compared with half the lenders a year ago. Meanwhile,
in western Wisconsin farm income improved somewhat: Half of lenders
reported below-average income in the second quarter compared with
nearly all lenders in the past quarter and a year ago.

Overall farm household spending is similar to the previous survey,
with 29 percent reporting below-average household spending in the
current period vs. 31 percent last quarter. Capital
spending remains depressed at nearly the same level as last
quarter as 56 percent of respondents indicated below-average capital
spending this quarter compared with 58 percent last quarter. The
biggest drop in capital spending is in North Dakota, where 73 percent
of respondents noted below-average levels compared with half the
lenders last quarter.

Farm loan volumes

Demand for loans remains at normal levels. Livestock and other
operating loan volumes were about average over the last three months,
as 66 percent and 64 percent of lenders, respectively, reported
normal loan demand. Machinery loan and other intermediate-term loan
activity was reported to be about average by 56 percent and 66 percent
of lenders, respectively. In addition, 49 percent of lenders indicated
normal real estate loan volumes.

Agricultural Loan Volumes

Feeder Livestock

Operating

Machinery

Real Estate

Significantly higher than normal

0%

1%

0%

1%

Somewhat higher than normal

10%

28%

5%

10%

Normal

67%

64%

55%

49%

Significantly lower than normal

15%

7%

33%

32%

Somewhat lower than normal

8%

0%

7%

8%

Percent of respondents, second quarter 2001.

Bank credit conditions and liquidity

Bank credit conditions and liquidity are little changed from a
year ago. Normal levels of loan repayments, renewals and extensions,
and the percentage of farmers at their debt limit were reported
by lenders to be about the same as in second quarter 2000. Availability
of funds does not seem to be a problem: Only 2 percent of lenders
reported refusing to make a loan due to shortage of funds.

Bank Credit Conditions

Available Funds

Loan Repayment

Significantly higher than normal

10%

1%

Somewhat higher than normal

14%

9%

Normal

64%

68%

Significantly lower than normal

11%

22%

Somewhat lower than normal

1%

0%

Percent of respondents, second
quarter 2001.

Land values, collateral and interest rates

Cropland prices increased over last winter's prices from an average
of 5 percent in North Dakota to 22 percent in South Dakota. In addition,
pasture land price increases range from an average of 5 percent
in Minnesota to 18 percent in South Dakota over those of a year
ago. Average levels of required collateral were noted by 80 percent
of lenders. Meanwhile, interest rates for farm loans have decreased
about 80 basis points from a year ago.

Outlook

"A major concern for much of Montana remains our serious drought
condition. Many cow-calf operations in south-central Montana are
facing the issue of reducing cow numbers due to lack of grazing
and hay," said a Montana banker. Other district states face
the opposite problem of too much moisture, which delayed planting.
The adverse growing conditions, higher input costs and low commodity
prices have agricultural lenders worried about the future. Below-normal
income levels are expected in the next three months by 61 percent
of lenders, while only 8 percent predict above-normal income. The
outlook for capital spending is nearly the same: 60 percent of lenders
anticipate below-normal capital spending over the next three months.

Fixed Interest Rates *

Feeder Livestock

Operating

Machinery

Real Estate

1st Q '00

9.8

9.9

9.8

9.2

2nd Q '00

10.1

10.1

10.0

9.4

3rd Q '00

10.4

10.5

10.3

9.7

4th Q '00

10.3

10.4

10.3

9.6

1st Q '01

9.8

9.8

9.7

9.1

2nd Q '01

9.2

9.3

9.2

8.6

* Average of
reported rates in mid-May 2001.

Facts about the survey

Each quarter, the Federal Reserve Bank of Minneapolis surveys
agricultural bankers in the Ninth Federal Reserve District,
which includes Montana, North Dakota, South Dakota, Minnesota,
northwestern Wisconsin and the Upper Peninsula of Michigan.
In mid-May, 87 bankers responded regarding conditions during
the second quarter 2001.